Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 03/2010

Determinants of Profitability: An Analysis of Large Australian Firms

by

Andreas Stierwald

Date: April 2010

Abstract: This paper identifies the determinants of firm profitability and quantifies their relative importance. Using a panel of large Australian firms for the period 1995 to 2005, the analysis estimates a dynamic profit model that, unlike most existing research, directly includes measures of productivity and productivity persistence. Descriptive statistics illustrate that the sample is characterized by a large amount of profit heterogeneity, and that substantial differences exist between industries and across firms. Estimation results indicate that firm profitability is predominantly determined by firm-level characteristics, and that sector effects are relevant, but to a much smaller extent. The analysis also reveals that, among firm effects, productivity and productivity persistence enhance profitability.

 

Downloads: PDF format (227K)